Colleges offering distance education, such as online courses, must receive authorization from each state where it has students in order to receive federal financial aid, according to recently released rules that aim to better regulate the online education industry and ensure students understand what protections they have when attending a college in another state. 

The Department of Education unveiled the proposed rules [PDF],  clarifying what schools must do to received federal student aid funds, and ensure institutions are legally authorized and monitored by states.

Under the proposal, the Department would require a school offering online education programs to get authorization in each state where it wants to market its programs and enroll students.

For example, if a college based in Virginia wants to offer online courses to students in Pennsylvania, it would need to apply to that state’s education agency and follow the relevant requirements to be approved. Requirements can include just paying a fee, or there could be additional minimum standards, depending on the state.

Currently, the Higher Education Act only requires institutions to be authorized in the state in which they are located as a condition to receive federal funding. However, schools are not required to seek approval from states in which they enroll students but aren’t physically located.

The proposed rules seek to close this loophole, protecting some 5.5 million distance education students across the country, the DOE says.

In addition to requiring state authorization, the proposed rules mandate that schools document the state process for resolving student complaints regarding distance education programs and provide disclosures to enrolled and prospective students, including information about actions taken against the school, the school’s refund policies, and whether each program meets applicable state licensure or certification requirements.

While advocates say the proposed rules provide an “important step” toward creating federal standards for increasingly popular distance education, they say some of the provisions don’t go far enough.

For example, the rule does not actually require a state to review out-of-state colleges applying for authorization. If a state has regulations in place concerning how colleges become authorized to operate in it, colleges have to comply with them. If those rules don’t exist, the college doesn’t have to comply with additional restrictions.

Additionally, the proposal only requires a blanket authorization from states, not accreditation for each course or program offered.

Suzanne Martindale, staff attorney for our colleagues at Consumers Union, also notes that the required student disclosures are nice in theory, but in practice they can be buried in enrollment contracts.

This means that students may not actually be informed about what they are signed up for. Students could enroll in a class or program without knowing it won’t help them become eligible to sit for an exam to obtain a professional credential in their home state.

“Some for-profit career colleges have a history of enrolling students in online courses that mire them in debt without providing the education they need to get a license in the state where they live,” Martindale said. “The Department of Education should strengthen its proposal by requiring accreditation for all specific programs offered to ensure students aren’t pushed into signing up for programs that won’t meet their needs.”

Additionally, while the proposed rule requires reciprocity agreements that leave room for states to enforce their own consumer protection laws, CU notes the agreements don’t automatically favor the state with the best consumer protection.

CU urged the Department of Education to make clear that a student’s home state always has final authority to resolve complaints, as well as generally apply their consumer protection laws.

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